Summary of Information in the Statement of Proposal to amend Christchurch City Council’s 2009-2019 Long Term Community Plan in respect of its Christchurch City Networks Limited shareholding
Details of the Proposal
1. The Council’s proposal is to:
(a) Amend the Christchurch City Council’s Long Term Community Plan 2009-19 to record a possible change in the Council’s existing level of ownership and control in respect of a Council controlled organisation, Christchurch City Networks Limited.
(b) Use the special consultative procedure to consult with the public on the proposal.
Background
2. In 2007 Christchurch City Holdings Limited (CCHL) established Christchurch City Networks Limited (trading as Enable Networks) to ensure that Christchurch has a quality open access broadband network. Christchurch City Council currently own, through CCHL, 100% of the shareholding in Enable Networks which is a Council controlled training organisation in terms of the Local Government Act 2002. The current shareholding is worth approximately $18.4 million.
3. The 2009-19 LTCCP (page 211 vol. 2) forecasts that Enable Networks will have telecommunications ducting totalling 140 km installed by 2009-10. It also forecasts that the company will have equity of around $17 million over the first three year period of the LTCCP. The equity in Enable Networks is listed as a strategic asset (page 208 vol.2).
4. In October 2009, the Crown, through the Ministry of Economic Development, issued an invitation to participate in a partner selection process in the Governments Ultra- Fast Broadband Initiative. The over-all objective of the initiative is to:
“accelerate the roll out of ultra-fast broadband to 75% of New Zealanders within 10 years, concentrating in the first 6 years on priority broadband users such as businesses, schools and health services, plus green-field developments and certain tranches of residential areas”.
5. The Government has earmarked $1.5 billion to fund this initiative.
6. Enable Networks has exceeded the LTCCP forecasts and now has approximately 150 km of fibre already laid in the streets of Christchurch and has existing plans for this to grow to more than 300 km in a three year timeframe. Clearly Enable Networks is well placed to partner with the Crown and build on its existing well developed technical and business platform.
7. The Government proposes to distribute its funding through an investment in shares in selected fibre companies. If Enable Networks is selected as the partner for Christchurch this has the potential to reduce CCHL’s current level of shareholding in the company to below 50% for a number of years. Depending on the type of capital contributed this could constitute loss of control by the Council in Enable Networks. If
10/133454 1
the Government agrees to provide funds there would be two shareholders in Enable Networks, the new one being Crown Fibre Holdings Limited, a Crown owned entity.
8. Over-all ownership and control of Enable Networks would still be held by the public sector. The extra funds would allow the company to grow significantly faster than would otherwise be possible by providing funding for a complete reticulation of urban Christchurch with fibre based open access broadband facilities.
Description of the Proposal
9. In the 2009-19 LTCCP, Enable Networks is listed as a strategic asset and under section 97 of the Local Government Act 2002, a transfer of ownership or control of a strategic asset can only occur if the decision to do so is provided for in the Council’s LTCCP. This proposal is therefore a proposal to amend Christchurch City Council’s 2009-19 LTCCP in respect of its control and ownership of Enable Networks. This is because if the bid for funds is successful, for a number of years CCHL’s investment in Enable Networks would be diluted by the issue of shares to the Government.
10. Those shares will be taken up by Crown Fibre Holdings Limited (CFH) in return for providing Enable Networks, or a subsidiary, for funding for the installation of 3000 km fibre network throughout the urban area of Christchurch and beyond. This network would be built over a period of ten years. As Enable Networks connects users to the network it will progressively redeem the funding contributed by CFH in proportion to the number of users connected.
11. If the bid by Enable Networks is successful it is expected that key elements (all of which are requirements of the Government funding) will be:
• CFH to be issued share capital in Enable Networks which will exceed 50% of total shareholding for more than 10 years; • CFH to appoint three of the Directors to the Board (up to 50% of the Board). • The Government to be issued a special share which will not have any right to dividends or ordinary voting rights but which will have veto powers on changes to the company constitution which will ensure that the company will: comply with open access requirements; have an obligation to connect all end-users seeking service; restrict the composition of the Board; control the costs charged to end-users for the service.
12. The only significant alternative option to the proposal is for enabled networks to not participate in the Government scheme. The outcome of this would be:
• another partner would be sought be CFH which is not likely to be locally controlled or community owned; • the existing enable network may either have to be sold or may risk loosing value.
13. Subject to the outcome of this public consultation, the Council proposes to authorise CCHL to approve arrangements which Enable Networks will enter into with CFH. CCHL has already reviewed the proposals submitted to the CFH. If Enable Networks is successful then the proposed agreement will again be scrutinised by CCHL at staff and board level. Before giving its approval, CCHL must be satisfied that the plans and forecasts are commercially viable.
Reasons for the Proposal
14. The proposal is necessary because the terms of the government funding through CFH require that control of Enable Networks is lost for a period of time while the company is in its development phase. The Council is consulting on the proposal now so that Enable Networks can effectively negotiate with the government and be in a
10/133454 2
position to enter into a contractual relationship with CFH if those negotiations are successful. Enable Networks has no choice but to comply with the timetables set by CFH.
Analysis of the Proposal
15. An analysis of the impact of the proposal on the Council and its finances shows:
• virtually no impact on CCHL dividends within the existing LTCCP period; • significant rates of return on the project once the crown shareholding has been redeemed.
Accountability and Monitoring Arrangements
16. Enable Networks is a subsidiary company of CCHL and will continue to be monitored by CCHL while it has an interest in the company, even if this falls below majority ownership for a period. It is expected that accountability to CFH is likely to be at least as great CCHL currently has and that as CCHL will remain a significant shareholder it will be entitled to receive the same information flow as CFH (the other shareholder).
The Potential Effect of the Proposal not Succeeding
17. If Enable Networks is unsuccessful in becoming a partner with CFH in this project and another party takes it on, then consideration will need to be given to the future of Enable Networks. This will include options to:
• continue with the existing business; or • sell the business to another party
18. Any sale of Enable Networks would be made only with the approval of the Council.
How this Proposal will amend the LTCCP
19. If the proposal is adopted by the Council, additional comments will be included which record the potential for change within the period of the 2009 – 19 LTCCP.
20. It is not expected that any change to Enable Networks will have any significant impact on the level of dividends from CCHL to the Council which are currently forecast in the LTCCP.
Submissions
This statement of proposal will be available for inspection during ordinary office hours at the following places:
• Civic Offices, 163 – 173 Tuam Street, Christchurch • Christchurch City Council libraries and service centres.
A copy of the statement of proposal may also be viewed on the Council’s website http://www.ccc.govt.nz/haveyoursay. A summary of the information contained in this statement will be distributed as a basis for general consultation.
Submissions on the proposal may be made in writing to the Council between 15 March 2010 and 5.00pm on 19 April 2010. Submissions may be made:
• electronically at http://www.ccc.govt.nz/haveyoursay • by using the submission form contained in the draft Annual Plan 2010/11 • or in any other written form to the Christchurch City Council, PO Box 237, Christchurch, 8141
10/133454 3
Any person who makes a submission will have the opportunity to be heard by the Council if this is requested. Hearings will be held in conjunction with the draft Annual Plan hearings on 10, 11 and 12 May 2010. The Council will meet to consider submissions received and to make decisions in respect of this statement of proposal on 21 and 22 June 2010.
The Local Government Act 2002 requires the Council to make all written submissions (including those made electronically) available to the public. This requirement is subject to the provisions of the Local Government Official Information and Meetings Act 1987. Any persons wishing to have information contained in their submission withheld should first discuss this with the Council Secretary, Clare Sullivan.
10/133454 4